Reconciling Safety And The Bottom Line

A conflict would seem inevitable between efforts to achieve established safety goals, i.e., reducing the recordable incidence rate, and the overall company


A conflict would seem inevitable between efforts to achieve established safety goals, i.e., reducing the recordable incidence rate, and the overall company aim of maximizing profits. Since an effective safety program ultimately supports company objectives, no such conflict need arise. Aligning safety and company goals leads to a more thorough integration of safety initiatives into operations, thereby avoiding a separate safety department operating in an oblique administrative role.

Almost everyone agrees that achieving the lowest possible incidence rate is a praiseworthy endeavor. Attaining that goal depends on the alignment of safety priorities with the company culture to yield best results. Figure 1 outlines two separate, but traditional, company safety program objectives:

An underlying problem with both companies’ objectives in Figure 1 is the lack of incident category cost accountability as well as implementation of programs and processes to reduce these incident rates. Company presidents often never see the losses or resulting insurance premiums. When the safety manager presents losses and total costs to upper management, better decisions can be made in balancing the incidence rate with safety costs.

Perhaps, the better objective for a safety manager is to achieve the lowest possible rate of financial loss associated with risk. Many problems are inherently associated with estimating losses in advance of final claim costs, since some claims can take years to close. Back injuries, for example, can entail relatively little expense, while others are costly to the point of permanent disability.

Identifying direct losses versus indirect losses poses a further challenge. Direct losses include identifiable costs such as medical and ambulance bills, workers compensation payments, legal costs, and settlements. Indirect losses include lost production due to time away from work, hiring costs, supervisory time spent conducting incident investigations and completing forms, disruption in scheduling due to an incident that stops work temporarily, travel costs for safety personnel required to investigate the incident, and many such related costs.

Yet, the safety manager can estimate losses immediately following an incident, just as the claims adjuster determines reserves. Losses can also be averaged for similar claims over a period of time. For example, six back injury claims in the company over the past five years resulted in losses totaling $240k, so the average back injury claim is estimated at $40k. Using loss runs for older claims with this estimating system for newer claims, the safety manager can then apply traditional incident rate information, indicating costs beside each incidence category as described in Figure 2.

Although Heinrich purists may scoff at chasing losses instead of focusing on the elimination of near misses, including identifiable losses with traditional incidence rates is more easily understood by financial and operations managers. As demonstrated in Figure 3, Company C in providing a list of losses associated with specific operations uses a more direct and progressive approach than A or B.

Company C is still required to maintain incidence records for customer prequalification forms, industry comparison, and for OSHA year-end reporting. The above loss summary form can be added to a safety report for both traditional Companies A and B who prefer to measure success with incidence rates.

Unfortunately, insurance companies tend to quantify incident losses according to a variety of categories, including body part and type of activity, such as struck against or slips trips and falls. In concrete industry plants and projects, such categories typically do not yield significantly useable results. Safety managers among concrete producers see a variety of seemingly nonrelated incidents and find a trend in incidents difficult to identify in analyzing the data. To make matters worse, the most common incidents are usually the least costly or injurious to personnel.

Other quantifiable factors that the safety manager must consider are safety department budgets and miscellaneous costs incurred by a plant that are charged to a safety category. Falling in the plant safety cost column are frequently misused charge codes. Items charged to safety are usually not questioned for reasons of liability or fear that a catastrophic incident might be blamed on the individual who required the cost cut. Accordingly, items unrelated to safety, but otherwise unjustifiable in an operations budget, may be assigned this charge code. A plant with a poor safety record, furthermore, will frequently show large annual safety expenditures, intended as a safeguard against potential court charges of disregard for the care of plant personnel. When this occurs, incident loss can always be identified as a mismanagement problem.

Figure 4 identifies quantifiable losses. Financial officers frequently disregard hidden expenses as the cost of simply doing business. For example, hidden costs associated with writing incident reports and taking injured personnel to the doctor are discounted, since the supervisor performing such functions is considered an established cost rather than one incurred separately.

For these reasons, the quantification of losses associated with specific operational processes provides a clearer picture for upper management of how to allocate resources more efficiently for loss control. In the end, an employee who gets hurt costs the company money, and the safety manager who acknowledges and accounts for that cost is better suited for the job.



Improve the Safety Record
Method A
(in order of priority)

  1. Reduce OSHA LTIR
  2. Reduce OSHA IR
  3. Reduce first aid rate
  4. Reduce near miss rate

The safety objective is to reduce the lost time incidence rate (LTIR) and the total recordable incidence rate (TIR or just IR). The company measures success or failure on the basis of the number of these incidents.


Improve the Safety Record
Method B
(in order of priority)

  1. Reduce near miss rate
  2. Reduce first aid rate
  3. Reduce OSHA IR
  4. Reduce OSHA LTIR

The order of objectives is reversed since Company B, attempting to adopt a more progressive stance, focuses on eliminating near misses in accordance with Heinrich’s pyramid theory. Company B believes eliminating unsafe acts and near misses will eliminate all other incidents.

N.B. A problem with both company goals is the disregard for losses, although many risk managers do their best to minimize excessive reserves on claims, closing claims as soon as possible to keep actual losses at a minimum.



Method A with Loss Data

Incidence Rate Losses
First aid rate $
Near miss rate (no.) $

Company A’s improved safety objective is to reduce incidents by quantifying losses according to the category of incidence rate. Identifiable losses are less abstract than incidence rates, and management can more easily establish safety objectives.



Reduce Losses
(listed in order of loss)

Losses Last Year Losses This Year Process
(descending order)
$ Most Curing, yarding, handling block
$ Plant and job mobile equipment
$ Auto accidents
$ Handling and tying rebar
$ Handling and setting forms
$ Materials handling, bins & silos
$ Delivery
$ Office
$ Other
$ Least Other

The safety objective is to identify the operational source of losses. Identifiable losses can be more easily associated with operations.


Direct Losses Program Costs
Total Direct Losses (loss runs)
Ô Ambulance
Ô Medical bills
Ô Worker’s compensation payments
Ô Legal costs
Ô Settlements
Physical exams
Training programs
Safety Incentives
Training time per trainee
Qualified plant safety costs such as personal physical exams and personal protective equipment
Safety administration budgets not considered necessary for OSHA compliance or sales

The two columns identify direct costs associated with losses and their prevention. By definition, OSHA compliance costs are considered a necessary expense; they are not included here, regardless of whether they actually reduce the incident rate or losses.


If made public, year-end numbers may hold considerable interest. Effective January 1, 2005, the Occupational Safety and Health Administration (OSHA) issued a final rule amending the occupational injury and illness recording and reporting requirements applicable to federal agencies, including the forms used by federal agencies to record those injuries and illnesses. By adopting applicable OSHA recordkeeping provisions as requirements for federal agencies, the final rule rendered the federal sector’s recordkeeping and reporting requirements essentially identical to the private sector.


Spilling and leaking onto the ground of a substance, such as oil, cleaner, solvents, paint, or any other liquid requiring an MSDS for compliance with Hazard Communication, constitutes a waste. As soon as the material makes the transition to a waste, perhaps in mid-air, HAZWOPER (Hazardous Waste Operations) becomes operative, prohibitively limiting a company’s ability to simply clean it up.

Among other things, the Hazardous Waste Operations (HAZWOPER) standard prescribes a 40-hour training requirement before a person is considered competent to clean up a spill. The question of how much is too much was sorely contested by industry in the initiation of the standard, although OSHA did eventually exempt the incidental spill. Incidental spills or incidental amounts are considered exempt from the standard, provided they can be cleaned up safely.

Because incidental is not clearly defined, a dose of common sense must be applied to the internal application of the term. For example, a 10-gal. spill of lube oil on the ground is not a significant hazard to clean-up personnel Û provided no attempt is made to ignite it, slather themselves in it, or perform some equally idiotic stunt. Nevertheless, a 10-gal. lube-oil spill might well be considered by OSHA to exceed the limits of an incidental spill. Accordingly, the legal department of one major oil company has determined that the limits of an incidental spill are a gallon of petroleum product. Beyond one gallon, the company requires the plant to report a spill and call in a waste clean-up company to remove material. Always, common sense is required, since failure to report even a quart of oil that may reach a pristine creek can leave the creek looking like an environmental disaster, when in fact, almost no real environmental damage has occurred. Once the material reaches water (or has the reasonable potential to do so) then mandatory reporting of waste is extended to any amount under separate EPA spill prevention control and countermeasure laws.

Many construction crews working on a customer’s site will consider a quantity of spilled oil to become reportable Û to the customer, at least Û when it cannot be cleaned up with a rag. At that point, the customer and the contractor jointly determine if the amount is a reportable quantity and whether the spillage remains in the incidental category.

Besides specifying what amount is incidental, the plant safety manager is well advised to locate a qualified, licensed, HAZWOPER-trained, local clean-up service before the spill occurs. A predetermined agreement with the clean-up contractor regarding costs and services can save a lot of money, as the ability to negotiate and shop costs for services vanishes once the spill has occurred.